The Gadfly
Bytes -- November, 1999

SUCKER ECONOMICS

By Ernest Partridge
University of California, Riverside
www.igc.org/gadfly // gadfly@igc.org

"There's a Fool Born Every Minute."

P. T. Barnum

"Never Give a Sucker an Even Break."

W. C. Fields

Would you like to hear of a sure-fire way to win the State Lottery?

It's really quite simple: just don't play!

Seriously! Don't play, and you will gain real dollars in
your pocket: it is the cash that you don't have to pay in state taxes,
thanks to all the suckers that are throwing their money at the lottery.

State lotteries, to put it bluntly, are regressive taxes on the poor and
the foolish. And they are a tax break to anyone with a rudimentary
understanding of the calculus of probability, and hence with the good sense
to abstain. In addition, the fortunate abstainers also gain a considerable
tax relief as a result of the state taxes on commercial gambling operations.

The amounts of cash involved in state lotteries are considerable. Gross
receipts are reported at about $40 billion, and the total net income to the
states is reported from between $14 billion and $26 billion. (Salt Lake
Tribune, Aug. 11, 1998, Slate, September, 1996)

Twenty-one years ago, only Nevada had casinos. Now they are in 26 states.
And lotteries are to be found in 37 states and the District of Columbia.
Only Utah, Tennessee and Hawaii are completely free of legalized gambling.

As state employees from throughout the realm well know, the promises of
public windfalls from lottery earnings are about as reliable as private
expectations of lottery winnings. Payments to state institutions are
generally offset by reductions from tax revenues. This has been the case
with the higher education budgets in California.

And those who feel they just must flirt with Lady Luck simply could not
make a worse choice than the state lotteries, which return in winnings about
half of what they take in. In contrast, the gaming tables and slot machines
in Nevada pay out well over 90% of the amounts wagered. So if you feel you
must throw away your money, by all means go to Vegas where at least you can
get a cheap meal and hotel room and enjoy the floor show while you and your
money are soon parted.

Its quite bad enough that the states utilize lotteries to raise public
revenues. But it is far worse that the states promote their lotteries. Thus
the state governments, established to "serve and protect" their citizens,
become instead their exploiters – the state as public bookie, and a monopoly
bookie at that. There are myriad good reasons not to play the state
lotteries, as we noted above, but don't expect that as much as a dime of the
lottery earnings will ever be used to warn the citizens that they are being
"taken." It is the objective of lottery commissions to raise as much revenue
as possible, and not to look after the welfare of the citizens. During our
residence in the Midwest and California we have seen hundreds of promotional
ads for the state lotteries, and not, to our recollection, a single
"counter-commercial."

And so, at a time when citizen distrust of government is reaching crisis
proportions, state governments are engaged in activities that were regarded
as criminal just a generation ago. If "Big Government" has any legitimate
role in our personal finances (and the libertarians, of course, insist that
it has none), then surely it should be to encourage us to use our personal
asserts prudently. The very last thing it should be doing is administering
and encouraging us to engage in the least prudent use thereof.

Do many citizens believe the state-sponsored lottery promotions?
Apparently they do. According to a report from the Consumer Federation of
America, over a quarter of Americans see lotteries as their best bet for a
secure retirement. Moreover, the Federation reports, "those who are spending
the highest proportion of their incomes on lotteries tend to be low and
moderate income households." And forty percent of those with incomes less
than $35,000 see the lottery as their best chance for having $500,000 for
their retirement.

The social costs, a few decades hence, when this horde of luckless
gamblers reach retirement age stone broke, is horrible to contemplate.